Coordination, Cooperation, and the Extended Coasean Approach to Economic Policy

The Coasean way to deal with the cooperation failure that is implicit in Pareto inefficiency is to remove or lessen the obstacles to cooperation through the attribution of property rights and the elimination or reduction of transaction costs. The relevance of this approach is however undermined by some intrinsic difficulties to its application in a real world context, such as those arising from the number and indeterminacy of the interested parties, the cost and indeterminacy of bargaining, and the free rider problem. A way to extend the Coasean approach while taking into account those real life limitations is to consider the local authorities as representatives of the interest of their local constituencies and, through the provision of an adequate institutional framework, to enhance the opportunities for cooperation through voluntary agreements involving private and public parties. Thus the extent of cooperation could be widened, as opposite to traditional remedial actions relying on non-contractual, or direct entrepreneurial action by the state. With the reduction in the appeal of state direct and coercive action a number of institutions emphasising the contractual cooperation between public and private parties have effectively grown of importance, as wide apart as the township and village enterprises in China and the programmazione negoziata in Italy. In the final part of the paper the latter experience is briefly reviewed and appraised.